Valeant hikes its takeover offer for Allergan

Allergan is a specialty pharmaceutical company that makes most of its money from Botox. Above, a doctor draws a dose of Botox. (Patrick T. Fallon, Bloomberg)

For weeks, Valeant Pharmaceuticals had promised a better offer for Botox maker Allergan, but its renewed cash-and-stock offer fell flat with investors and analysts.

After Irvine-based Allergan Inc. rejected a $46-billion offer earlier this month, the Canadian company on Wednesday boosted the cash portion of its bid by $10 a share, valuing the proposed deal at about $50 billion. It also would pay Allergan shareholders a portion of the deal in Valeant shares.

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"It's clearly too low," said David Maris, an analyst with BMO Capital Markets, noting that the stock price hardly budged in early trading. "The market is telling you that not only is it too low, the deal is not going to go through."

Shares for both companies closed down slightly Wednesday. Allergan was down $8.90, or 5.39%, to $156.12. Valeant shares were down $3.00, or 2.31%, to $126.95.

Since late April, the two companies have been locked in a hostile takeover battle that is expected to be long and tumultuous.

Allergan has resisted takeover talk from the start. It is digging in hard, raising questions Tuesday about Valeant Pharmaceuticals International Inc.'s business strategy and transparency in financial reporting. Its Canadian rival, however, is not going to give up so easily in its pursuit.

"Our increased offer provides immediate value to Allergan shareholders," Valeant Chief Executive J. Michael Pearson wrote to Allergan chief David Pyott. "We ask you once again to enter into discussions with us promptly so that we can consummate this mutually beneficial transaction."

The back-and-forth is being carefully watched by Allergan's 11,600 employees. Analysts have predicted that hundreds or thousands could be out of jobs if the deal goes through and Valeant slashes research and development funding as previously proposed.

New in Valeant's latest proposal is a provision that would pay up to $25 a share based on future sales of medication being developed by Allergan to treat an eye condition.

In an apparent effort by Valeant to show more commitment to research and development, it would invest up to $400 million to help develop the drug Darpin, now in early stages of development. It also promised to retain Allergan employees to bring the drug to market.

Some analysts said the new provision was not enough to improve the bid substantially.

"This commitment to develop one Darpin does not make sense," wrote Aaron Gal, a senior analyst with Bernstein Research. This "space is highly competitive" and Valeant would need to commit to long-term development of the drug to compete.

Allergan's response to the offer was terse and unenthusiastic. In a statement, it said only that it would "carefully review and consider" the revised proposal. A spokeswoman for the company did not immediately respond to a request for further comment on the new offer.

Maris, the BMO Capital analyst, said it's unlikely Allergan would even entertain the offer.

"Why would Allergan sit down with Valeant?" Maris said. "It's a waste of time when you have no interest."

Other analysts agreed.

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Gal called the renewed Valeant offer "rather disappointing."

The company should be valued between $167 and $184 a share, much higher than the estimated value of Wednesday's bid, which is valued at about $166 a share, Gal said.

"We hoped for something more imaginative," he said, "like substantially altering the share of cash and stock."

The week, which kicked the hostile takeover into high gear, started with a presentation by Allergan critiquing Valeant's management and its proposed plans to reduce research and development spending.

Pearson on Wednesday defended his company in addition to unveiling the revised bid.

"It appears based on Allergan's recent public statements that you have a fundamental misunderstanding of our business model and its performance," Pearson said. "We would be delighted to provide you and the Allergan board with the opportunity to better understand our business model and address any concerns that you may have. "

Separately, the Canadian company also announced — to the surprise of investors — that it had sold Galderma, a unit in Switzerland that sells cosmetic products, to Nestle for $1.4 billion.

Based in Quebec, Valeant last month teamed up with activist investor Bill Ackman in an attempt to acquire Allergan, whose bestselling product is Botox, the popular wrinkle treatment.

The merger, if it goes through, would double the size of Valeant. It would become one of the largest specialty pharmaceutical companies in the world — and a giant in the eye care and skin care business.

Allergan is a specialty pharmaceutical company that makes most of its money from Botox. It also sells breast implants and a line of ophthalmic drugs, including Restasis, the only prescription drug approved to treat chronic dry eye.